Hospitals improperly allowed into state malpractice fund, suit claims

The state’s Patient Compensation Fund, which helps doctors and other qualified providers pay malpractice claims, has a dangerous deficit because the state Office of Superintendent of Insurance has allowed corporate hospital chains to participate in it, according to a lawsuit filed by current and former New Mexico Medical Society presidents.

“If the fund were to become insolvent, it would cause irreparable harm to New Mexico physicians and the New Mexico healthcare system,” said the suit, filed last week in state District Court in Santa Fe against the insurance office and Insurance Superintendent John Franchini.

A 2016 actuarial study found the fund was  $36.6 million short of where it should be to be actuarialy sound — six times greater than what was reported in a 2014 study, the suit said.

The suit accuses the insurance office of qualifying, in a “secret and surreptitious manner,” 16 hospitals and 46 outpatient care facilities to use the fund without disclosing whether they would be charged enough to cover “the enormity of the malpractice liabilities” they pose, the suit said.

It asks a judge to block decisions in 2009 and 2016 that allowed those providers to tap into the fund, established in 1976 as insurance against medical malpractice claims. The “overwhelming balance” of the fund is paid by surcharges levied against doctors, based on the riskiness of their specialties, the suit said.

“Rather than working to shore up the ailing fund for New Mexico’s physicians, who were its existing beneficiaries, the superintendent imposed additional burdens on the fund by allowing New Mexico’s largest hospital chains to `tap in’ to the fund for payment of their malpractice liabilities.” Franchini, who took office in July 2010, did not respond to a request for comment Monday.

Before the insurance office qualifies a hospital or outpatient care center, it must do studies on the risk each provider poses to the solvency of the fund, the lawsuit says. However, it’s impossible to know what the risks are because the decisions were made in secret, the suit says.

The fund pays malpractice claims above a provider’s $200,000 personal liability, up to the $500,000 cap imposed by state law on medical negligence.

The suit points to an insurance office decision in 2009 giving Christus St. Vincent in Santa Fe access to the fund, but the company’s annual surcharge “remains a secret,” the suit said.

It said more secret deals followed in 2015 and 2016, with approvals for Community Health Systems and Quorum Health, which operate rural New Mexico hospitals; Ardent, which owns Lovelace hospitals and the Heart Hospital of New Mexico; LifePoint Hospitals in Las Cruces and Los Alamos and HealthSouth, with its rehab hospital in Albuquerque, the suit said.

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